Flood Zone Goldmine:How Investors Cut Flood Insurance Costs & Unlock Hidden Property Value

DJ McClure (00:00)
So commonly we’ll be talking to someone and they’ll say, the seller said it’s not in a flood zone.

But that’s because the seller doesn’t have any debt, thus they don’t have a requirement. And then they go through their underwriting process, they get all the way to the last 20, 30 days, then all of sudden the lender says, by the way, the flood zone has thrown up a requirement, you’re gonna need this amount of flood insurance for closing, and they weren’t prepared for that. So now you’ve got a wrench in your underwriting that you didn’t model for.

Scott Bursey (02:05)
Hi everyone and welcome to the Real Estate Pros Podcast. I’m your host Scott Bursey And today I’m joined by someone I’ve really been looking forward to chatting with. DJ McClure, who’s been making serious moves in the asset value enhancement space. DJ serves as the vice president of sales and business development at National Floods Expert.

DJ collaborates with national flood experts and engineering experts to deliver tailored cost saving solutions for flood zone properties across a variety of vertical commercial real estate markets. NFE has saved clients over $30 million in insurance premiums and added over $500 million in property values since 2014. DJ, welcome to the show.

DJ McClure (02:53)
Thank you.

Scott Bursey (02:55)
Great to have you here and I think our audience is really going to take something away from your ability to see the unicorn, if you will. You know, those unique opportunities in properties. Everyone else seems to be running away from. Let’s dive in, shall we?

DJ McClure (03:15)
Sure.

Scott Bursey (03:16)
So first off, for people who may not be familiar with your story, your background, give us the short version. What have you been up to recently?

DJ McClure (03:27)
Sure, so I came across this company eight years ago. They had started the company a few years before. I had had a background in the tennis industry, played in college, taught tennis professionally for the bulk of my 20s, which I like to say was really my sales foundational training. Dealing with people and solving problems is the same regardless of the industry.

You know, I came across this company and I found it very intriguing, the problem they were solving, which was, you know, helping reduce flood insurance costs, you know, for properties in flood zones. And the founder, you know, he kind of told me the story of how the company was created and, you know, he’s a professional engineer, done, you know, some of your typical civil projects, but took a break and actually worked in the insurance space. And he found there was this…

overlap in this really underserved area of the real estate industry that could provide tremendous value. And so the company was founded with that very mindset. ⁓ And so I really was drawn to that. And eight years later, here we are still chasing flood zones.

Scott Bursey (04:45)
That’s awesome, I wasn’t aware of your tennis background. ⁓ A lot of people that have that sort of background can excel in business because of the basic principles, team principles, things of that nature, so I find that really cool. What markets are you guys operating in?

DJ McClure (05:04)
So our company is based out of Tampa, Florida. ⁓ Majority of our team is located out of there. We work nationally. You wouldn’t think about it. Most people, when you say flood zone, they think of the coastal areas. ⁓ But in reality, we’re doing projects in all 50 states around the country.

Scott Bursey (05:24)
Cool, cool, a broad spectrum. DJ, what caught my attention about you was the way you’ve been able to reframe risk as opportunity. That’s not easy, especially in this climate. What’s been the key to keeping your machine running smoothly?

DJ McClure (06:30)
Well, I think there’s a huge misunderstanding within the real estate space about, kind how the flood zones operate, how they’re created, updated, and then kind of what really centers around why flood insurance is required. And so there was a law passed back in the late 60s that basically said anything that is in a 100 year flood zone, the flood maps weren’t really started until the early 70s.

in some parts of the country and then into like the mid 80s. So any federal loan that was found to be inside a hundred year flood zone was then required for flood insurance. for many years, lots of investors, ⁓ they just continued to renew the policy, not knowing that there could be a chance that the flood zone might have some outdated information.

And so one of the core services that we started with was helping clients advocate to have their properties removed from the 100 year flood zone. And that’s just continued to expand all these years.

Scott Bursey (07:38)
Sure, it really has evolved. Great point. Now every operator I know has a moment where things got real, DJ. Maybe a deal went sideways or a time that you or the company had to pivot fast. You mind sharing one of those moments with us?

DJ McClure (07:58)
Yeah, we’ve had clients where, you know, they’ve had a certain forecast for their properties and, you know, maybe they go into a refinance and we find that there’s blind spots that tend to happen because the loan programs dictate the flood insurance requirements. And so you may have only had to carry a certain limit per building. Initially, you go into maybe like an agency loan that has, you know, very specific limit requirements.

⁓ more closely related to the replacement value. And, you know, so these are some of the pivots that happened because, you know, A, they may have to take on a cost they weren’t expecting, you know, but these are the moments that we, you know, try to point these blind spots out before they become problems, you know, so the pivot is really finding someone that can help with that solution. Once we get the flood maps updated with FEMA, removes that requirement. And then, you know, this could be someone we met that refinanced last year.

Now all of sudden they’ve got an extra hundred thousand in cashflow. Or if we meet somebody early enough, like right now there’s obviously a ton of properties that are trying to refinance. And if we’re able to address this before they go in, obviously this has a dramatic impact on the loan proceeds. And then instead of having to take on that huge cost, we’ve prevented that from becoming potentially a blow up scenario for the refi or just for the cashflow going forward.

Scott Bursey (09:26)
Absolutely. And it’s incredible to me how the moments that feel like a disaster, you know, in real time often become the foundation of the company’s growth perhaps over the next 10 years. And honestly, that’s the filter DJ that separates the people that are dabblers.

in the industry and it defines the companies that are in it for the long run. Let me ask you this.

DJ McClure (09:57)
Yeah, 2020

was the test for us because, you know, 2020 things are going kind of nuts as a lot of companies had. And, you know, we kind of had some, you know, do we lean in and continue attacking the market? Do we pull back? You know, we were, we were adding team members at the time and, you know, it ended up being like one of our best years, you know, up to date because obviously the real estate market was active, but, you know, we’ve been able to weather the storm these last five years as the real estate market has shifted. It’s changed a lot of the ways that

you know, we’re finding clients and it’s changed a lot of the different ways we’ve been able to help. So.

Scott Bursey (10:35)
Yes, yes, I can see that. Let me ask you this. What is the company most focused on solving or scaling next?

DJ McClure (11:21)
Well, I think we’ve been really focused, you know, these first 10 plus years really on existing real estate. We’ve definitely shifted more into the development space. You know, as urban density has got to be what it is, you know, as areas are starting to be redeveloped or maybe we’re starting to move into, you know, some of the more outer rural areas, there’s some flood zone.

know, drainage, regulatory things that are making these projects more complicated. There’s more ⁓ updates to the flood maps that they’re requiring as part of those construction projects. So that has started to bring those clients to us a lot more frequently. But, you know, I’ll tell you, Scott, the big thing that’s different in this audience specifically is because like NFE has this brain that has three…

overlapping thought processes, one being the engineering side, of course, the second being the flood insurance expertise, and then the real estate expertise on top. So when we go into working with the developer, we’re trying to help them understand how do we set something up from the beginning to improve the value of that the most possible, and then how do we help mitigate and reduce future insurance costs for the flood. ⁓

That’s typically overlooked in a good majority of cases that we see. So it’s a very unique partnership that we do working typically with the other civil firms as part of the development team. And so now we’ve brought all the different lines of thought to help maximize the value.

Scott Bursey (12:59)
Sure. Where do you see your business world, the company’s business world in the next 10 years?

DJ McClure (13:07)
That’s a great question. mean, the thing about our core business lines is that the flood maps continue to update on different schedules, you know, at the county level around the country. So there’s a never ending, you know, kind of wheel that’s turning for properties that, you know, need our initial review. Cause we do like a no cost desktop review for all the properties that we first look at to see, you know, is there something we can do with the flood zone? Is there something we can do to help our engineers be able to, you know,

advocate with their flood insurance carrier to reduce the policy. So that I don’t see that business line really ever going away. ⁓ You know, but we really started to get into, like I said, the development side is endless. There’s a tremendous amount of things that we can do just with some softwares that we have built initially for internal use that allow us to be able to forecast and understand, you know, some of the flood insurance costs. ⁓

forecasting for when a levy gets built into an area or other infrastructural projects. With the way FEMA’s flood insurance program is built now, it’s really hard for the local ⁓ municipalities to be able to understand the ROI on those projects. So I really see us getting involved at a much larger scale ⁓ with some of these projects going forward.

Scott Bursey (14:32)
if you’d talk a moment or two about the competition.

What sort of competition are you facing in the marketplace and some hurdles that you may see there?

DJ McClure (14:45)
Yeah, I mean, think there’s just a lot of misinformation that exists in some cases at the local level. So, you know, we don’t generally run into a lot of competitors that are doing the exact same type of review that we’re doing. So that almost becomes a competitor in itself because no one has anything to compare it to. ⁓ You know, so someone might get, you know, not necessarily out of wrong intent, but they may get misinformation and understanding that, yes, the flood zones can be changed. Yes, there’s…

updates that can be done to the benefit of the property. So it’s helping to educate and really advocate for these property owners. ⁓ And so in doing that, we’re, I think, hopefully kind of paving our own way, we like to think, but we definitely didn’t invent these processes. So there’s definitely other engineering groups and there’s some other consulting groups that we do run into from time to time ⁓ that also do great work.

I think that what makes us separate ourselves is the way that we’ve built our process and the knowledge bases that really core from the engineering expertise first.

Scott Bursey (16:36)
Sure, makes perfect sense. Thank you for that. What is the company doing to strengthen the relationships in the industry?

DJ McClure (16:46)
You know, so we partner a lot with the adjacent industries ⁓ that are serving the same clients. know, so most commonly we work with, you know, the insurance brokerage industry, you know, so basically any of the, you know, insurance brokers you think about all around the country, whether it’s the big national firms or, you know, some of the independent ones, we try to help them, you know, by really giving them our service at their fingertips to be able to help their clients because, you know, again,

having our team’s ability to go deeper into these scenarios, and since there’s no cost to do the review, why not? ⁓ So the insurance teams, they use us heavily in their prospecting, they use us to take care of their current clients. ⁓ We help with, again, pointing out these blind spots that are happening with new acquisitions or refinances that’s on the dead side. And then from that, we’ve branched out over the years, we work with the investment sales brokers.

You know, as well, they’re trying to do whatever they can to help their clients find hidden value opportunities. They’re trying to help their sellers maximize their sale proceeds. ⁓ And then probably Scott, the third one that’s the most common is like we do partner a lot with some of the lending teams, you know, because again, what we’ve done is kind of mapped out where does the flood zone throw up a flag in the real estate life cycle from start to finish and tried to make sure we’re networking with all those same individuals.

to help solve that problem.

Scott Bursey (18:18)
Sure. Is there any advice you’d like to provide for our audience in closing?

DJ McClure (18:25)
Absolutely. So if you’re buying a property that you think might be in a flood zone, know, a, you can obviously reach out to our team and we can help, you know, confirm and, and share some high level details. But I think it’s always important to understand that what the seller’s ⁓ debt situation is may not be the same for you and what their flood insurance requirements are in place will not automatically be the same for you as well.

So commonly we’ll be talking to someone and they’ll say, the seller said it’s not in a flood zone.

But that’s because the seller doesn’t have any debt, thus they don’t have a requirement. And then they go through their underwriting process, they get all the way to the last 20, 30 days, then all of sudden the lender says, by the way, the flood zone has thrown up a requirement, you’re gonna need this amount of flood insurance for closing, and they weren’t prepared for that. So now you’ve got a wrench in your underwriting that you didn’t model for.

And not to mention, you’ve got a short time window. So we get those calls all the time. And fortunately, we’re nimble enough to be able to move quickly and ⁓ help counteract that. But early detection with this kind of thing ⁓ is key.

Scott Bursey (19:40)
Excellent, excellent words of wisdom by somebody that knows what he’s talking about. DJ, this has been a pleasure.

All right, before we wrap, if someone wanted to reach out and connect with you, maybe collaborate or learn more about what you’re doing, what’s the best way for them to reach you?

DJ McClure (20:02)
Yeah, I mean, they’re welcome to send, know, send me an email. It’s just first name, [email protected]. I encourage people to also check out some of the case studies on the website just to be able to, you know, see some real life examples.

Scott Bursey (20:18)
Well, listen, I appreciate your time and your perspective. We need more people in this space who are doing it the right way. Thanks again for being here.

DJ McClure (20:29)
Thank you.

Scott Bursey (20:31)
And for those of you tuning in, if you got value from this, make sure you’re subscribed. We’ve got more conversations coming up with people in DJ’s position next. Thank you so much everybody and have a great day.